Taxing internet shopping - a tax problem looking for a technology solution
As Christmas approaches, plenty of shoppers are taking to the internet to make purchases, some will be buying goods from New Zealand, while others will be buying items from further afield.
There has been a lot of publicity about the uneven playing field for New Zealand retailers that exists because of internet shopping and the ability of consumers to purchase low value goods (generally worth $400 or less) which are not subject to New Zealand GST when they come into New Zealand.
What doesn't get mentioned so often is the advantage that New Zealand businesses have selling to the rest of the world, where GST is also not charged. However as revenue authorities around the world start thinking about how to tax the digital economy, that advantage will eventually be lost.
Case in point, Australia.
Australia has recently changed its tax laws to require many non-Australian businesses to register for Australian GST and charge Australian consumers 10% GST from 1 July 2018. This Australian tax law has the potential to impose material compliance costs on New Zealand businesses, and it's therefore imperative that New Zealand businesses start considering these laws now, with a view to having their websites updated to comply with these rules. Similar laws already exist in Australia for sales by non-residents of digital services (e.g. streaming services, mobile apps), however these rules for sales of physical goods are more complicated and will impact on a much larger number of New Zealand businesses.
This law changes represents an opportunity for the IT community to develop efficient systems to help businesses comply with these laws.
So what exactly is Australia doing? Some key aspects of the rules to be aware of are:
Who: Non-Australian businesses who are making (or projected to make) supplies to Australian consumers of AU$75,000 or more per annum may be required to register and charge Australian GST on sales to these customers. In some instances the GST obligations may fall to another party, such as an online marketplace operator or redelivery service provider.
What: Under the new Vendor Registration Model suppliers will need to add Australian GST of 10% to any supplies of "low value goods" to Australian consumers (i.e. not GST registered businesses). The "low value good" threshold in Australia is AU$1,000. Generally sales of goods costing over AU$1,000 do not require GST to be charged (GST will continue be collected at the border instead). If multiple products are sold at the same time, exceeding the AU$1,000 threshold it will be necessary to determine whether the goods will be consigned together or separately to determine if GST should apply.
When: The rules will apply from 1 July 2018. Businesses subject to the rules will need to start thinking now about how they will comply with the new rules and get themselves ready to register for Australian GST (under with a full registration for GST or under a new simplified registration process).
How: There are a number of complicated design features associated with these rules. Businesses selling over the internet will need to consider upgrading websites and checkout software to deal with complications from these rules. Some of the issues which will need to be grappled with include:
- Determining where customers are located (either before or during the checkout process).
- Determining how products pricing will be displayed based on customer location (e.g. can an Australian based customer view product prices inclusive of the 10% Australian GST).
- Converting NZD currency amounts to AUD to determine whether a customer is buying low value goods.
- Determining whether Australian customers are end-consumers or GST registered businesses (e.g. seeking a declaration through the checkout process).
- Determining whether goods will be consigned together or separately.
- Determining how returned or replacement goods will be dealt with.
- Ensuring New Zealand GST is not also charged.
These questions may lead businesses to consider how they transact with customers, and in particular whether enough profit is derived from Australia to justify these new compliance costs, or whether another avenue of selling (such as through an online marketplace, or not shipping direct to Australia and allowing redelivery services to be used by customers) is worth considering. The availability of software which helps businesses comply with these rules will influence this decision making.
Australia is the first major trading partner of New Zealand to introduce a system requiring businesses to collect GST on sales of goods in this manner, however they are unlikely to be the last. Countries around the world will all be looking to increase tax revenues and ensure tax isn't creating competitive advantages, so selling via the internet may continue to get increasingly complex from a tax perspective.
Robyn Walker is National Technical Director - Tax at Deloitte New Zealand and has a specialist interest in both new tax rules and GST.
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